Editor's Note: This is a complimentary research note from Hedgeye Energy Policy analyst Joe McMonigle. Email sales@hedgeye.com for information about our institutional research.
Looking ahead to the US mid-term congressional election, most political analysts expect the Democrats to take control of the US House of Representatives while Republicans maintain the majority in the US Senate. Assuming this is the outcome, we provide the following analysis of the impact of the election on energy policy.
The big picture: don’t expect many changes in the direction of energy policy or regulation as the executive branch still controls the energy policy wheel. While the Democrats will have a different focus on climate policy and oversight and investigations, there is unlikely to be any Democrat initiatives that become law due to Senate Republicans blocking and having different priorities. Consequently, there is a very low probability of any energy legislation.
Meanwhile, in the administration, there is talk of a post-election cabinet shuffle in Washington. Much of the focus is on Interior Secretary Zinke potentially departing or changing seats in the cabinet. But we highly doubt there will be any changes at DOE or EPA.
1) The election in general has been good for oil prices. Trump's jawboning of oil prices ahead of the election got the Saudis and other Gulf producers to increase production this fall from 10.29 million barrels per day (b/d) in July to 10.7 million b/d in October. Two weeks before the election, Saudi Energy Minister Khalid al-Falih said that OPEC is in a "produce as much as you can" mode. While the Saudis are hiking production for Trump and the Iran sanctions, the rest of OPEC is concerned about the so-called NOPEC legislation in Congress. At the June OPEC meeting ministers decided to increase production by 1 million b/d to mitigate high prices and take the momentum out of the NOPEC sails. The thinking then was that the group just needed to get past the US election. We think the NOPEC legislation had already lost steam when gasoline prices retreated and don’t expect it to get new traction after the election.
2) No big changes to energy policy. The Democrats will have a different agenda but none of their proposals will get implemented with Republicans maintaining the Senate Majority and Trump in the White House. Also 90 percent of energy policy is done via the executive branch and regulations, and we expect the current pro-energy agenda under Trump to continue during the next two years. However, Democrats may bring a focus to other issues such as climate change, and we also expect an oversight spotlight on EPA and Interior Department environmental regulations.
3) Some potential for gains in clean energy tax policy and energy budgets. Divided government may usher in some horse-trading on big spending bills. Tax policy and appropriations bills, especially the big year-end omnibus spending packages that we have seen in recent years, will now become even greater opportunities for horse-trading with Democrats controlling one chamber. As in years past, we expect clean energy to be the big beneficiary here. On tax policy in particular, we think there is the potential for solar and wind tax cut extensions and other tax policy tweaks that have affected the credits. In addition, we think there is the potential for an extension of the Electric Vehicle Tax Credit or reforms like removing the 200,000 vehicle caps on individual manufacturers.
Email sales@hedgeye.com for information about our institutional research.
